Exports create bullish market for shale oil

By Staff | November 14, 2017

Recent surprising rises in U.S. oil exports provide reason for optimism for the shale oil and gas industry over the next few years, according to Greg Haas, director of integrated energy for Stratas Advisors.

Haas recently spoke to the Houston Petroleum Club on the topic of "New Crudes for New U.S. & Export Demand." At Stratas Advisors—a global consulting firm with offices in Houston—Hass oversees the midstream research practice related to developments in the crude oil, condensate, NGL and natural gas industries.

Haas has more than 25 years of integrated global energy experience. Following his presentation, Haas spoke to North American Shale Magazine about trends that he believes will benefit U.S. shale oil and gas.

Will 2018 be the year that the U.S. oil and gas industry shakes of the effects of the low-oil-price environment or will it take longer?

More and more, we’re starting to think that $60 to $70 a barrel is the new $100 or at least the new $80 a barrel. That’s because people are continuing to make more and more cost-cutting and improvements in drilling and completion technology. That level of productivity improvement in just four years is really underpinning the ability to make money in these shale plays, even when prices are $50 to $60. But certainly things would be a lot better in the $60 to $70 range. Do we forecast that to happen in 2018? It might be 2019 before we break out of the 60s. But 2018 will definitely be a better year than 2017. I think all parties would agree that 2017 was better than 2016. We’re more optimistic, but we’re not head over heels.

Are you concerned that midstream companies won’t be able to stay ahead of production? If so, why?

Yes. It takes commitments to build pipelines in the capacities and volumes that we need today. It takes certitude from the upstream to make those commitments. Without those commitments, the midstream cannot raise the capital that intensive and they cannot convince the lenders and debt holders to give them the fund to build this out. It’s often the case of overbuild and underbuild. To expect that production and pipeline capacity will always be in balance is a very unbalanced view of the world. The realistic approach is to watch the pipelines, watch production and then anticipate longer and longer lead times to construct the pipelines.

It sounds as if you’re expecting an increased global demand for U.S. light crude. Why are you optimistic about this?

There’s a little bit of room for expansion of the refining capacity in the U.S. Beyond that, it’s evident that the greater opportunity for U.S. crude is actually the export market. We’ve gone from effectively zero exports—outside of Canada—to 2 million barrels a day recently. That is just shocking. I was expecting 300,000 to 600,000 barrels or so. In recent weeks, we’ve blown past that three or four times. We’re at 2 million now. Is that going to stay? The fundamentals right now are very strong, meaning we have the port capacity, we have adequate stocks to destock even further and the price is right—$6 cheaper than Brent. The price signal is there and the crude is there. We think that in the next couple months, we could see very strong exports. We think that crude exports will be strong, but maybe not as strong as the recent highs they’ve climbed to likely because of weather interruptions. We do think that the offshore market is key to the continual health and strength to the U.S. onshore upstream oil patch.

What will be the greatest significance of the U.S. becoming energy independent and a net oil exporter? What are the global consequences if that happens?

It’s an amazing reversal of fortunes to our advantage. We are already an exporter of coal. We are already an exporter of natural gas liquids of all kinds—ethane, propane, butane and condensate. We are already a net exporter of refined products—gas and diesel and others. The last thing is crude oil. We’re importing 5 or 6 million barrels per day—depending on what timeframe you want to look at. We just exported in the last couple weeks 2 million barrels. We’re net importing about 3 million barrels of crude, mainly from Canada in the form of heavy crude and other crudes they have that we don’t that our refineries prefer. If you look at North America, we could become a crude independent area very quickly. In fact, we may already be. Internationally, I think the buyers of crude will see low prices for a good while yet as the U.S.—which was formerly the world’s largest importing nation—becomes more of an exporting nation. That then adds supply to countries like China and others that are growing.